Living in one state and working in another—or moving states mid-year—can make filing your taxes more complex. One of the most common questions taxpayers face in these situations is whether they need to file returns in two different states. Equally important is the concern of whether you might end up paying taxes twice on the same income. This blog explores when you’re required to file in multiple states, how to handle part-year residency and nonresident returns, and how to legally avoid double taxation.
When You Might Need to File in Two States
Filing in two or more states isn’t as unusual as it sounds. Here are the most common scenarios where it happens:
- You moved to a new state during the year.
- You live in one state and work in another.
- You have income-producing assets (like rental property or investments) in another state.
- Your employer is located in a different state from where you reside.
In such cases, you may need to file either as a part-year resident, a nonresident, or both, depending on state laws and how income was earned or sourced.
Types of State Returns: Resident, Part-Year Resident, and Nonresident
To determine your filing requirements, it’s crucial to understand the types of state returns:
Resident Return
If you lived in a state for the full year, you’re considered a full-year resident and must file a resident return in that state. You’ll generally report all income—no matter where it was earned—but get credit for taxes paid to other states.
Part-Year Resident Return
If you moved to or from a state during the tax year, you’re a part-year resident in both states. Each state taxes you only on the income earned while you were a resident there. You’ll typically split income based on your move-in and move-out dates.
Nonresident Return
If you live in one state but earn income in another (e.g., cross-border commuters), you may have to file a nonresident return in the state where you worked. Only the income earned in that state is taxable on a nonresident return.
Understanding Source Income
States generally tax you on “source income”—that is, income earned from activities within their borders. This includes:
- Wages earned while physically working in the state
- Rental income from property located in the state
- Business income generated within the state
- Income from services performed in the state
Even if you’re a nonresident, you may owe taxes on this type of income and must file accordingly.
How to Avoid Double Taxation
Paying tax in two states doesn’t necessarily mean you’ll be double taxed. Most states offer mechanisms to avoid this:
State Tax Credits
Most commonly, your resident state will allow you to claim a credit for taxes paid to another state. This prevents you from being taxed twice on the same income. You’ll need to complete a special form when preparing your resident return.
Reciprocal Agreements
Some states have reciprocal agreements, which allow residents to work across state lines without filing a nonresident return. These agreements are typically limited to wages and salaries and only apply to neighboring states.
Examples include:
- Illinois and Iowa, Kentucky, Michigan, and Wisconsin
- Indiana and Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin
- Pennsylvania and New Jersey
To take advantage of a reciprocal agreement, you’ll usually need to file a form with your employer to ensure taxes are withheld for your home state only.
Allocating Income Between States
If you moved mid-year, you’ll need to allocate your income appropriately between the two states. This typically involves calculating:
- Wages earned in each state based on dates or pay periods
- Where you were living when you received investment income
- Rental income by property location
- Self-employment income based on where work was performed
Special Considerations for Remote Workers
With the rise of remote work, many taxpayers live in one state and work for a company based in another. This can trigger tax obligations in both states—even if you never physically enter your employer’s state.
Some states follow the “convenience of the employer” rule, which can make remote workers liable for tax in the employer’s state. New York is especially known for this. Always verify the rules for both your home and employer’s state.
States Without Income Tax
There are currently nine states with no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you move to or from one of these states, you may still have to file a part-year return in your previous state but won’t owe taxes in your new one.
What About Local Taxes?
In addition to state taxes, some cities and counties also impose income taxes. For example, New York City and Philadelphia require city tax returns. Make sure you review local rules if you live or work in these jurisdictions to avoid missing an obligation.
Tips for Filing in Multiple States
- Keep detailed records of where you lived and worked, especially the dates of your move or travel.
- Use tax software or a tax professional experienced in multi-state returns to help allocate income properly and claim appropriate credits.
- Check residency definitions in each state, as these vary and can impact your filing obligations.
- File nonresident returns first so you can properly claim credits on your resident return for taxes already paid.
Common Mistakes to Avoid
- Double reporting the same income on both states’ returns without claiming a credit.
- Failing to file a return in a nonresident state where you earned income.
- Not allocating income correctly when moving mid-year.
- Overlooking local tax obligations when working in certain cities.
Conclusion: Multi-State Filing Requires Strategy
Filing in two states can feel overwhelming, but it’s manageable with the right knowledge. If you’ve moved, work across state lines, or earn income from out-of-state sources, there’s a good chance you’ll need to file multiple state returns. The good news is that most states provide tax credits and exclusions to ensure you aren’t unfairly taxed twice on the same income.
The key is to understand your residency status, identify your sources of income, and use available credits and agreements. When in doubt, consult a tax professional to ensure you’re filing correctly and maximizing your refund or minimizing your tax liability.
